Baron is betting on Tesla founder Elon Musk. "To do what he's done so far boggles the mind. To revolutionize the way you're making cars and spaceships at the same time." Musk is also the founder of SpaceX, a private company that makes rockets and spacecraft.

On CNBC's "Squawk Box," Baron acknowledged that Tesla stock is expensive based on current earnings and revenue. "But what you're betting on is this company can be much larger."

Running through his investment thesis, which he's touched on before, the Baron Capital chairman and CEO cited Tesla's sales projections for 50,000 vehicles this year, as many as 80,000 next year, and a half million by 2020.

"Five hundred thousand cars a year in 2020 ... that's a business of $35 billion or $40 billion a year in revenue. Say they make $6 billion of operating profit before they spend to make themselves grow larger. That means that's probably worth $120 billion [in market cap]. Now market value is about $30 billion, so it's quadruple in five years," he said.

Baron Capital, with $25.1 billion in assets under management, owns 1.3 million shares of Tesla at a unit price over time of about $218 each, making the total cost of buying the shares $282.7 million.

The market value of Baron's stake was nearly $300 million as of Wednesday's close of $231 per share. That's around where it was mid-morning Friday, which represented a nearly 4 percent rise this year, about double the anemic return of the S&P 500 in 2015.

Baron stake in Tesla (TSLA)

Initial purchase date

5/10/2012

Initial purchase price

$33.11

Unit cost per share over time

$218.43

Total cost to buy 1.3M shares

$282,714,299

Current market value of stake

$299,804,963

Source: Baron Capital 11/04/15

Baron acknowledged that Tesla won't be alone in cars-of-the-future market: "I think Apple will probably try to have some branded car," and so will Alphabet's Google.

While traditional automakers have dipped their toes into electric vehicles, he doesn't think they'll be able to do what Musk has done because of what he says is inertia in the C-suite.

By the time executives who run those businesses ascend to CEO, "they've had very great careers," and don't want to rock the boat, Baron argued, because their companies have billions of dollars invested factories that make engines and transmissions.

"They're not paid to take [big] risk," he said.

But he insisted automakers need to take the risk. "The only way you're going to have sustainable transport is not by using hydrocarbons anymore but rather using electricity."